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[2011] ZASCA 67
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First South African Holdings (Pty) Ltd v Commissioner for South African Revenue Services (372/10) [2011] ZASCA 67; 73 SATC 221 (11 May 2011)
THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Case No: 372/10
In
the matter between:
FIRST
SOUTH AFRICAN HOLDINGS
(PTY)
LIMITED
.................................................................................................
Appellant
and
COMMISSIONER
FOR SOUTH AFRICAN REVENUE
SERVICE
.....................................................................................................
Respondent
Neutral
citation:
First South African Holdings v CSARS
(372/10)
[2011] ZASCA 67
(11 May 2011)
Coram:
Harms DP, Lewis, Ponnan, Bosielo and Theron JJA
Heard:
03 May 2011
Delivered:
11 May 2011
Summary:
Income Tax Act 58 of 1962 ─ section 79A ─
interpretation ─ date of commencement.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
North Gauteng High Court
(Pretoria) (Webster J sitting as court of first instance):
The appeal is dismissed with costs including the costs
of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
HARMS DP (LEWIS, PONNAN, BOSIELO and THERON JJA
concurring)
[1] The appellant, First South African Holdings (Pty)
Ltd (the taxpayer), applied on notice of motion to the High Court,
Gauteng
North, for an order that a decision of the respondent, the
Commissioner, South African Revenue Service, be set aside. The
Commissioner
had held that he was precluded by law from considering
the taxpayer’s request for the issue of a reduced assessment to
income
tax in respect of the 2002 tax year. The request was based on
the provisions of s 79A of the Income Tax Act 58 of 1962. The
application
was heard by Webster J, who dismissed it with costs,
including those of two counsel. He subsequently granted leave to
appeal to
this court.
[2] The facts are few and not in dispute. The taxpayer
rendered an income tax return for the 2002 year stating that its
taxable
income amounted to R15 892 978. It sought to set off against
that income an assessed loss of R34 978 418 carried over from the
previous tax year. This meant that the taxpayer had on its own
showing suffered a tax loss of R19 085 440 (R34 978 418 minus R15
892
978) which, presumably, could be carried over to the next financial
year.
[3] The taxpayer, in calculating its 2002 income, failed
to take account of the fact that certain foreign exchange gains were
not
fully taxable in terms of s 24I(7A) of the Act. It accordingly
overstated its taxable income. The taxpayer, it might be mentioned,
did not repeat this mistake in the subsequent years but it also did
not notify the Commissioner of the mistake made previously
because it
was unaware of it.
[4] The Commissioner, also oblivious of the error,
accepted the taxpayer’s figures and issued an income tax
assessment on
17 July 2003 accordingly. He assessed the income of the
taxpayer at R15 892 978 and he allowed the carrying over of the
assessed
loss of R34 978 418 for purposes of set-off and, therefore,
no tax became due to the Commissioner for the particular year.
[5] On 12 April 2006 the Commissioner issued an
additional assessment in respect of the 2002 year, disallowing
set-off of the 2001
assessed loss. The Commissioner was entitled to
do so in terms of s 79(1) of the Act since the three year period,
which began to
run on 17 July 2003, had not yet expired. This meant
that the taxpayer’s income for that year, namely R15 892 978,
became
fully taxable. With interest added in terms of s 89quat the
sum of R6 681 010 became due to the Commissioner. It is important to
note at this point that the Commissioner, ex facie the papers, did
not reassess the taxpayer’s income, but only the set-off
of the
2001 assessed loss.
[6] The taxpayer lodged an appeal against the refusal of
the Commissioner to set off the balance of this assessed loss. (The
appeal
also concerned other tax years and issues but the particulars
are not germane for this judgment.) The matter was settled and the
taxpayer withdrew its appeal relating to the particular additional
assessment.
[7] In a letter dated 24 July 2007 the taxpayer, having
by then realised that it had overstated its income for the 2002 year
by
not taking into account the provisions of s 24I(7A), applied to
the Commissioner for a reduced assessment for the 2002 year in terms
of s 79A. This provision, which was introduced by s 28 of the
Taxation Laws Amendment Act 30 of 2002
, reads to the extent relevant,
as follows:
‘
(1) The
Commissioner may, notwithstanding the fact that no objection has been
lodged or appeal noted in terms of the
provisions of
Part III
of
Chapter III of this Act, reduce an assessment—
(a) . . .
(b) where it is proved to the
satisfaction of the Commissioner that in issuing that assessment any
amount which—
(i) was taken into account by
the Commissioner in determining the taxpayer’s liability for
tax, should not have been taken
into account; or
(ii) . . .:
Provided that such assessment,
wherein the amount was so taken into account . . ., was issued by the
Commissioner based on information
provided in the taxpayer’s
return for the current or any previous year of assessment.
(2) The Commissioner
shall not reduce an assessment under subsection (1)—
(a) after the expiration of
three years from the date of that assessment; or
(b) . . ..’
[8] The taxpayer’s argument amounted to this: (a)
the 2006 assessment was based on information provided by the taxpayer
for
the 2002 year; (b) it is not in dispute that the taxpayer had
overstated its taxable income for that year; (c) tax was accordingly
calculated on an incorrect amount; (d) the Commissioner should have
accepted that he had a discretion to reduce the assessment
under s
79A(1); and (e) he was consequently incorrect in assuming that he was
not entitled to consider the application for reduction.
[9] The Commissioner opposed the high court application
on two bases: he first argued as a point
in
limine
that s 79A did not apply to the 2002
year; and, alternatively, he said that the taxpayer was time-barred
by s 79A(2)(a) because
the three-year period began to run when the
original assessment was issued on 17 July 2003 and not on the date of
the additional
assessment, namely 12 April 2006, as was submitted by
the taxpayer.
[10] The Commissioner’s point
in
limine
was based on the provisions of s
85(2) of the Amendment Act. It is in these terms:
‘
Save
in so far as is otherwise provided in this Act or the context
otherwise indicates, the amendments effected to the Income Tax
Act,
1962, by this Act shall for purposes of assessments in respect of
normal tax under the Income Tax Act, 1962, be deemed to
have come
into operation as from the commencement of years of assessment ending
on or after 1 January 2003.’
Since the error arose in relation to the 2002 year and
the Act applied only to a tax year ending during 2003, so the
argument went,
the taxpayer was not entitled to apply under the
section and the Commissioner was not entitled to entertain the
request.
[11] The Amendment Act did not only amend the Income Tax
Act but also Acts such as the Insurance Act 27 of 1943, the Estate
Duty
Act 45 of 1955, and the Customs and Excise Act 91 of 1964. These
amendments, according to general principles, came into effect on
the
date of publication of the Act, which was 5 August 2002. Section
13(1) of the Interpretation Act 33 of 1957 provides that
‘
[t]he
expression “commencement” when used in any law and with
reference thereto, means the day on which that law comes
or came into
operation, and that day shall, subject to the provisions of
subsection (2) and unless some other day is fixed by or
under the law
for the coming into operation thereof, be the day when the law was
first published in the Gazette as a law.’
[12] The amendments to the Income Tax Act in the
Amendment Act were a mixed bag. Some were taxing provisions and
others, such as
the one under consideration (as well as, for
instance, sections 29 to 32), were administrative. Some of the taxing
provisions had
their own particular dates of commencement (eg
sections 10, 12, 14) while the rest were covered by the general terms
of s 85(2).
This explains the use of the phrase ‘for purposes
of assessments in respect of normal tax under the Income Tax Act,
1962’
in the subsection. Those amendments to the Income Tax Act
that were introduced for purposes of assessments in respect of normal
tax were to come into operation as from the commencement of years of
assessment ending on or after 1 January 2003. Those with their
own
dates commenced on the given dates. And as to the balance the
provisions of the Interpretation Act applied.
[13] The Commissioner wished us to ignore the phrase
quoted as being redundant. It is not. Its purpose was to state the
obvious:
as a general principle taxing provisions deal with future
matters and are backdated only exceptionally. Section 79A is not a
provision
inserted for purposes of assessments in respect of normal
tax and the point
in limine
,
which was not decided in the court below, cannot be upheld.
[14] As an aside, the taxpayer submitted that we could
not consider the point in the absence of a cross-appeal but at least
since
Municipal Council of Bulawayo v Bulawayo
Waterworks Co Ltd
1915 AD 611
at 631 such a
point has no merit: the Commissioner did not seek a variation of the
order in his favour. He sought only to support
it on another ground.
[15] The second issue, as mentioned, is whether the
taxpayer was time barred by s 79A(2)(a). This depends on the question
whether
the three-year ‘prescription’ period began to run
once the original assessment was issued on the date of the additional
assessment. The date of the ‘error’ is irrelevant. If
‘assessment’ in s 79A were to be a reference to the
notice of assessment, the latter date would presumably be the
applicable one. But that is not what an assessment is. It is a
‘determination’
by the Commissioner of one or more
matters (compare
ITC 1077
28
SATC 33
at 38 per Corbett J).This appears from the definition of the
word in s 1 of the Income Tax Act:
‘“
assessment”
means the determination by the Commissioner, by way of a notice of
assessment (including a notice of assessment
in electronic form)
served in a manner contemplated in section 106 (2)—
(a) of an amount upon which any
tax leviable under this Act is chargeable; or
(b) of the amount of any such
tax; or
(c) of any loss ranking for
set-off; or
(d) of any assessed capital loss
determined in terms of paragraph 9 of the Eighth Schedule,
and for the purposes of Part III
of Chapter III includes any determination by the Commissioner in
respect of any of the rebates
referred to in section 6 and any
decision of the Commissioner which is in terms of this Act subject to
objection and appeal.’
[16] The 2006 assessment was a re-assessment of a loss
ranking for set-off under para (c). It did not re-assess the income
of R15
892 978 under para (a). What the taxpayer sought is an
indulgence relating to the latter and not the former ─ it had
overstated
its income. It wanted the Commissioner to re-consider the
quantum of its taxable income but, using the wording of the section,
‘that assessment’ was made during 2003 and became final
during 2006. The section does not allow the Commissioner to
revisit
‘any’ assessment.
[17] The taxpayer submitted subsequently that it is in
effect seeking a re-assessment of the tax payable under para (b) and
that
it is entitled to do so because that amount was assessed for the
first time in 2006 in the additional assessment and that the
three-year
period has not lapsed. The problem with the submission is
that any re-assessment of the tax payable under para (b) will be
dependent
upon a re-assessment under para (a), which means that the
amount of tax payable would simply be a mathematical calculation
based
on a re-assessment under para (a). In other words, a
re-assessment under para (a) would be a prerequisite for one under
para (b).
[18] This result might at first blush appear to be
unfair towards the taxpayer in the circumstances of this case. But
any other
conclusion about the meaning of ‘assessment’
would have meant that the Commissioner could within three years as
from
2006 have reconsidered the taxpayer’s taxable income of
R15 892 978 by means of a new assessment under s 79(1), thereby
raising
the taxable amount six years after his original assessment of
that amount. That is unthinkable (
Commissioner,
South African Revenue Service v Brummeria Renaissance (Pty) Ltd
2007 (6) SA 601
(SCA) para 26).
[19] In the result the appeal is dismissed with costs
including the costs of two counsel.
____________________
L T C Harms
Deputy President
APPEARANCES
APPELLANT/S M M Rip SC (with him H V Vorster)
Instructed by TRM Daniel Erasmus Attorneys, c/o Rooth &
Wessels, Pretoria
Symington & De Kok, Bloemfontein
RESPONDENT/S: D M Fine SC (with him A J Lapan)
Instructed by The State Attorney, Pretoria
The State Attorney, Bloemfontein